You have been provided the following data on the securities of three firms, the market portfolio, and therisk-free asset:a. Fill in the missing values in the table. (Leave no cells blank - be certain to enter O wherever required.Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)StandardDeviationSecurityExpected ReturnCorrelationBetaFirm A.118.23.94Firm B.132.421.49Firm C.113.74.27The market portfolio.1220The risk-free asset.es"With the market portfolio.b-1. According to the CAPM, what is the expected return of Firm A's stock? (Do not round intermediatecalculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)Expected returnb-2. What is your investment recommendation for someone with a well-diversified portfolio?Sell• Buyb-3. According to the CAPM, what is the expected return of Firm B's stock? (Do not round intermediatecalculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)Expected return16%b-4. What is your investment recommendation for someone with a well-diversified portfolio?O Sell

By using the above formula we calculate the missing figures for different stocks. Beta of the market…

Answered: You have been provided the following…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Problem 1 You are given the following information about stock X and the market portfolio, M: Riskless Asset (f) Stock X Market Portfolio (M) E(r) 0.04 (4%) ? 0.10 σ 0.00 0.30 0.20 You are not given the expected return of stock X. The correlation of the returns on the stock X and the market portfolio is equal to 0.4. a) What is the beta (6) of stock X? b) Assuming the CAPM holds, what is the expected return on stock X? c) You have $1,000 to invest in some combination of the risk-free asset, stock X, and the market portfolio. You are thinking of investing $300 in the risk free asset, $400 in stock X, and $300 in the market portfolio. What is the overall expected return, standard deviation and beta of this portfolio?
(a) Mr Adani invests in two risky securities with the following details: Security 1: r1=0.16; 01-0.30; Security 2: r2=0.08; 2=0.25 Where r1 is the expected return of security 1 and o1 is the standard deviation of returns of security 1; r2 is the expected return of security 2 and o2is the standard deviation of returns of security 2 The correlation coefficient (p12) between the returns of the two securities is -0.5 (i) Calculate the expected rate of return(r) and risk(o) for the following portfolios: 1.40% security 1 and 60% security 2 II.80% security 1 and 20% security 2 I (ii) Given a risk-free rate of 4%, describe how Mr. Adani can use a combination of a risk-free instrument and a risky portfolio with an expected return of 15% to achieve an expected return of 26%.
Q1) The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk-return characteristics of a portfolio consisting of only stocks A and B, and explain why? (Image attached as Q)
Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 10% and a standard deviation of 16%. B has an expected rate of return of 8% and a standard deviation of 12%.The risk-free portfolio that can be formed with the two securities will earn a(n) _____ rate of return. Multiple Choice 8.9%Correct 4%. 9.9% 9.0%Incorrect 8.5%
Practice question on equity portfolio construction using the Treynor-Black method.Do not use chatgpt so answer properly
b) Suppose that you observe the following information in Table 2 for stocks A and B: Table 2 Expected Return (%) 11% Stock Beta A 0.8 В 14% 1.5 The risk-free rate of return is 6% and the expected rate of return on the market index is 12%. Using the Single-Index Model, calculate the alpha of both stocks. Show your calculations. Explain what the alpha of the single-factor model represents and interpret your results.
V1
use attachment to answer question q2- This question relates to Diagram 2 from the 9.4 diagrams, which shows the Security Market Line. A share has a beta of 0.5 and, based on it's current price, has an expected return of 5%. Based on the CAPM, is the share overpriced, underpriced or correctly priced? Select one: a. Unable to determine without more information. b. Correctly priced c. Overpriced d. Underpriced
Please correct answer and don't use hand rating
b. Consider the following information about three stocks: Probability of State of i. ii. iii. iv. State of Economy V. Boom Recession Economy 0.40 0.60 From the information given, you are required to answer the following questions. Compute the Standard Deviation for each stock. Compute the Coefficient Variation for each stock. Based on your computation in part (i) and (ii), which stock is riskier? Explain your answer. Rate of Return if State Occurs Stock Hang Stock Hang Jebat 7% 13% Tuah 28% (5%) Stock Hang Kasturi 15% 3% Assume that you have RM14,000 invested in Stock Hang Jebat whose beta is 1.5, RM19,000 invested in Stock Hang Kasturi whose beta is 2.5 and RM17,000 invested in Stock Hang Tuah whose beta is 1.6. Determine what is the beta of this portfolio. Based on your answer in part (iv), compute the required rate of return for this portfolio, given that the market rate of return is 13% and risk-free rate is 5%.
Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rƒ. The characteristics of two of the stocks are as follows: Stock Expected Return Standard Deviation A 8% 55% B 4% 45% Correlation = −1 Required: a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be formed to create a “synthetic” risk-free asset?) (Round your answer to 2 decimal places.) b. Could the equilibrium rƒ be greater than rate of return?
Q1: Suppose there are (N) securities in the market and it is Expected return for each security = 10%. It was a contrast For any security = 0.0144 and the deviation was The common (covariance) between any two cards = 0.0064 Required: 1-Determine the expected return and variance of a portfolio consisting of... (N) paper, note that the relative weight of all papers equal = 1-N? 2- Explain what happens to the variance of this portfolio as it increases value(N)?

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